The tax debate is moving forward in Washington, but lawmakers may be going in the wrong direction when it comes to the national debt. Anyone who laments the gross debt surpassing $20 trillion cannot support tax cuts that explode the debt in their next breath.
The House of Representatives on Thursday approved of a budget resolution on a mostly party-line vote that includes reconciliation instructions to change the tax code. The Senate Budget Committee also approved of a budget on a party-line vote the same day that includes reconciliation instructions on taxes as well. Using the reconciliation process means the Senate can avoid a filibuster to enact tax changes with a simple majority of 51 votes. The full Senate plans to vote on the budget later this month and then the House and Senate will have to resolve the differences between their two budgets.
The Trump administration and congressional Republican leaders recently put forward a tax plan outline that could significantly increase the debt without changes and the Senate budget would allow tax cuts to add up to $1.5 trillion to the deficit. With the national debt at record levels and climbing, all those who are truly worried about the debt have no rationale for supporting tax cuts that will worsen the already unsustainable fiscal situation.
The national debt held by the public is currently 77 percent of the economy. By this measure, the only time debt was higher was World War II. Even more worrisome, the debt is projected rise steeply in the coming years, exceeding the size of the economy by 2033. According to the non-partisan Congressional Budget Office, debt at such high levels will curtail the growth of the economy and wages, make it more difficult to respond to unforeseen events such as a recession or disaster, and increase the likelihood of a fiscal crisis.
Tax cuts that are not paid for will accelerate the growth of the debt and speed up the timeline for reaching such troubling levels. In fact, a rough estimate of the tax plan from our partners at the Committee for a Responsible Federal Budget found that it would add over $2 trillion to deficits and push the debt higher than the economy in just ten years.
Comprehensive tax reform done in a fiscally responsible way can promote sustained economic growth, as well as fairness and simplicity. However, slashing tax rates without paying for it will have the opposite effect because it will balloon the debt. We give 5 reasons why tax reform should not add to the debt.
If growth really is the main goal of the tax plan, then reform that helps fix the debt rather than add to it will produce the most bang for the buck. In fact, a study from the non-partisan Joint Committee on Taxation indicates that tax reform that produces more revenue increases long-term growth greater than revenue-neutral reform.
Those wanting to cut taxes talk about reducing the tax burden for Americans, but adding to the debt through tax cuts is nothing more than a tax on future generations to pay for current cuts. Our children and grandchildren are already on the hook for a mountain of debt. We should be working to fix the debt, not make it worse.
Write Congress today and tell your representatives that you want sensible tax reform, not tax cuts that increase the national debt.
National Debt and You